Business

Hyundai Motor cuts perks for staff, trims costs

South Korean automaker 'in emergency management mode' to reverse falling profits

SEOUL: Headed for a fourth straight annual profit decline, Hyundai Motor is scaling back on business class flights and annual family home trips for overseas employees, executives told Reuters.

The South Korean automaker was hit by its exposure to weak emerging markets, and a product line-up that featured more sedans than sport utility vehicles (SUVs) just as the latter became more popular globally.

The belt-tightening aims to buy it time to prepare new models and a design revamp.

Since October, Hyundai Motor Group executives have taken a 10 per cent pay cut - the first in seven years.

The group also downgraded hotel rooms for executive travel, and is encouraging video calls as a cheaper alternative to travel, insiders said.

"We are in emergency management mode," said an insider who did not want to be named.

In a response to Reuters for this article, Hyundai Motor said it is "making various cost-saving efforts".

Other costs, such as low-margin supplier parts and labour at the heavily-unionised automaker, are tougher to pare back, said analyst Ko Tae Bong at Hi Investment & Securities.

While Hyundai remains cash-rich, its costs as a proportion of revenue have risen for five straight years to 81 per cent so far this year, regulatory filings show.

"Cutting expenses are stopgap measures, and won't... improve bottom line," Mr Ko said, calling them more "symbolic".

SALES DECLINE

Hyundai grew quickly after the global financial crisis, with brisk sales of its sedans. It was the only major automaker to increase sales in the US in 2009.

But it has struggled as its rivals' sales of SUVs boomed and emerging market economies weakened.

It was a difficult year this year. Things will get better.Hyundai-Kia executive vice-president park Hong Jae

Hyundai Motor shares have fallen 40 per cent in the past three years, the worst performer among global automakers.

Sales of Hyundai cars, and those of its affiliate Kia Motors, could drop to 8 million this year, a first decline since Hyundai bought its smaller domestic rival in 1998, said Mr Ko.

Hyundai-Kia executive vice-president Park Hong Jae expects sales to pick up again.

"It was a difficult year this year. Things will get better," he told reporters on Thursday, citing recovery in markets such as Brazil and Russia.

Another Hyundai source said the group has trimmed its preliminary 2017 sales target to 8.2 million vehicles, from the 8.35 million forecast in mid-year.

BUDGET

While it is looking to manage its staff budget, Hyundai is beefing up its SUV offerings, freshening up its Sonata sedan, and redirecting exports from slow-demand markets like the US.

Hyundai is working on a next generation of cars with "a different flair" to hit the market from 2019, senior vice-president for design Luc Donckerwolke told Reuters.

The biggest holder of Hyundai Motor preferred shares, the Norway-based Skagen Kon-Tiki fund, expects the automaker to get back on track over the next couple of years. Mr Knut Harald Nilsson, the fund's lead portfolio manager, reckons margins should recover to above 7 per cent, from 6 per cent earlier this year - but are unlikely to return to the 10 per cent levels of a few years ago. - REUTERS

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